Reimagining Cities: Disrupting the Urban Doom Loop

So welcome to On the Park Bench, a public square conversation brought to you by the Congress for the New Urbanism on the Park Bench Presents Interactive Conversations with thought leaders in new urbanism In allied fields related to the built environment. Today we have reimagining Cities, disrupting the Urban Doom Loop with Rebecca Rocky and Christopher Leinberger, moderated by myself, Rob Studeville. So you can join us for upcoming webinars. We have one scheduled November 12th. It's an author's forum with Michael Dennis, author of the Venetian Facade.u.org slash resources slash on the park bench. And today we have an impressive duo of experts in real estate finance and economics. Rebecca Rocky is Deputy Chief Economist and Global Head forecasting at Cushman and Wakefield. She is certified by the International Institute of Forecasters and is a member of the American Economic Association and the National Association of Business Economics and the National Economics Club. Christopher Leinberger is a land use strategist, prop tech startup co-founder, real estate developer, professor, researcher, and author. is founding partner of Arcadia Land Company and co-founding partner and managing director of Place's platform He has spoken at many CNU congresses Rebecca and Chris have written a remarkable report. With first of its kind data on downtowns and urban centers, the report is reimagining cities, disrupting the urban doom loop. It's the best I have read on the current state of downtown's adjacent areas. in transit-oriented urban centers. So welcome, Rebecca and Chris to On the Park Bench. I'm Rob Studeville, editor of CNU's Public Square. First, there's going to be a presentation, then a brief discussion among the panelists, and then Q&A from the audience. So please use The Q&A function of Zoom to ask your questions as they occur to you will more or less get to them in the order they are received. Now I'm going to hand this over to Rebecca and Chris. So I'm going to share my screen here. much more exciting with some good visuals. And let me know. There we go. Okay. So yeah, we have maybe 25, 30 minutes of prepared remarks where we're going to go through our findings in the study and maybe show you a few things didn't quite make it into the public report. With the agenda being, let's talk about the approach. The second part of our agenda is to talk about the portfolio. And by that we mean the product mix of real estate within these parts of our cities. And then we'll end on what our recommendations were based on our analysis. So I think the um The first thing, right? And in fact, the inspiration for this study was to think about our cities facing a doom loop? If so, which ones, why, and how can we transition from an environment, if we are facing a doom loop. towards something that is what we call a virtuous cycle, which we've described, I'm not going to read you all the words on the charts. But one hypothesis that we had was that part of what's driving a doom loop in certain urban centers which we describe as episodic in nature as of right now is to move towards a more optimal built environment Okay, kind of think of it as real estate investors themselves can allocate the dollars in their portfolio however they see fit, but a city has a physical built environment around it. And we had a suspicion that perhaps portfolio theory had been violated in that physical built environment and to establish a more virtuous cycle for the economy, for investors. for city governments, we needed to think about establishing this optimal portfolio. that's the portfolio theory lens that we bring in this study Which is really driving some of the approach that we take. So I'm going to go through and feel free to chime in, Chris, but we did lean on Chris's expertise, which places platform, our partner in this study, has really developed and has been deployed in studies with groups like Smart Growth America. This is kind of the two ways that we think about place. Instead of thinking about zip codes or metropolitan statistical areas or what have you, we wanted to think about the development form walkable urban or is it drivable sub dash urban and the economic function. So think of walkable urban as once you're in this place, you generally walk around as the mode of transportation. might have to drive to get there. It's once you're there, how are you getting around? And that correlates with other attributes of the environment around it. Or do you get around by driving? And that correlates with attributes of the built environment around it. And by that, what I mean specifically as in places where you tend to walk around, we tend to see mixed use property types, and we tend to see higher levels of density. When you're in more drivable areas for a variety of reasons, we tend to see that real estate is more siloed. And it has disparate locations for different kinds of use cases. There are a lot of planners on this call that Drivable suburban FARs. are between 0.5 and 0.5. Walkable urban pretty much starts at 1.0 far They tend in this country to be in going up to four or five. Now we do have a couple examples of 30 and 40 FAR, which would be like midtown manhattan But for the most part, we're talking four or five FARs. for what we're building as far as walkable urban places. And so over top of the development for we overlay the economic function, and this is derived from the kinds of employment that actually exist within a given place. And so think about jobs as kind of having two different functions. One is to serve the local community. The other that would be sort of your dentists, your firefighters, your educators and so on. Others are regionally significant, and this is where the notion of multiplier effects comes in. They tend to, when the economy is growing, bring revenue into a metro area or a city or a walkable urban place and actually generate economic activity where dollars originated from outside of that place to begin with. And so this is where you come up with multiplier effects that became very popular, for example, when Amazon was searching for headquarters and Enrico Moretti's research of five new jobs for every tech job became common parlance. That's the same notion, export jobs create multiplier effects. So where we see density of export oriented jobs, as I've just described what those are. overlaying that with walkable urban. We studied this particular quadrant. We did not study any of the other parts of this quadrant or this matrix. We just looked at walk-ups. Right. Walkable urban places that are regionally significant. Now, the important thing to note is that walkable urban places in general, both local serving and regionally significant, are a massive 1.2% of the landmass of our metropolitan areas. That's it. And by the way, as a developer of new urbanist communities and of walk-ups. The other 98.8% of the landmass is drivable suburban And it's illegal to build walkable urban stuff there unless you want to move mountains to get it rezoned. But it's a very small amount of our metropolitan land But it generates 35% of the metropolitan economy coming out of 1.2%. of the land use right and and those are findings based on research that Chris has done with Smart Growth America of the top 35 largest MSAs. We're going to drill down into what we studied within the nomenclature of walk-ups as well as the sample of cities that we looked at. So there are four different kinds of walk-ups. What I have here is just a visual representation of those in the metropolitan DC area where Chris and I are both sitting right now. We looked at downtowns. That's the dark blue near the center of the map there, downtown adjacent, which physically touch the downtown, urban commercial which are those red walk-up types and urban universities. Which are in blue. within that top left quadrant, we have four different kinds of walk-ups. And just to put you into a metro context. that in the suburbs that there are three types of walk-ups in the suburbs. There are suburban town centers these are 18th, 19th century towns that were laid out to be walkable. all went downhill in the late 20th century. Now they're almost all coming back as high density walkable urban places Then there's the conversion of drivable suburban places regional malls getting torn down regional malls being redeveloped And just increased density in a drivable suburban location. And then finally, Greenfield brownfield sites, Reston Town Center. is the granddaddy of greenfield development in this country. Where you just add water and poof, you have instant urbanity. So those are the urbanizing suburbs, which is really important in the future. We're just focused on the center city and the four types that are in the center city right So to fine tune what Chris was saying earlier. These are just actual pictures to give you an example and flavor of what these look like in the DC area. We did not look at the metro area. We looked at the city within each of the metropolitan areas that we had in our study and within the city, we're looking at the walk up. So by the nature of the construction of the study, we excluded suburbia and the three types of walk-ups Chris just described. These are the 15 markets that we looked at, the six gateway cities. So in the investor world, when we're working with our clients at Cushman and Wakefield, when we say gateway cities, we mean six markets and six markets only. And those are them listed on the top left there. We wanted to add in additional insight as to how our findings may evolve by including secondary markets at different levels of size, geographic location, economic and demographic structure. And so there we have the nine secondary cities that we included. they're physically on the map as well for you to see. And it's important to note that these walk-ups in these And there are 208 walk-ups in these 15 cities. And they are on a spectrum. there are the cities that are leading the way towards more walkable urbanism and those that are laggards. But what we have seen in this study and also other studies is that it's kind of a Doppler effect everyone's shifting towards more walkable urbanism because there's pent up demand for walkable urbanism. It may be illegal to build But the market wants it in a major way. So to end the approach section, we did want to sort of talk about the the data set that we constructed, it took many months. It is a first of a kind data set, I think for a reason, because of how resource intensive it was. But think of this as our our best attempt, and we think it was a pretty good attempt at including 100% of all real estate, typically in commercial real estate, we would not include the for sale housing market, and we would not include things that are not in the competitive rental market. So owner occupied real estate, education and university real estate, GSA and government real estate, which in DC is important, but also in other cities, including Miami, which had the second largest GSA footprint within walk-ups at 5% of real estate. These were the different sources, many different sources were used here. We obviously also supplemented with economic data that we sourced from various government agencies, including the US Census Bureau and the Bureau of Economic Analysis. But this is really the first attempt we've ever seen done to actually look at 100% of all real estate. And it's important to note that we are building this data set from the bottom up. from the parcel level up. We cannot superimpose goofy things such as zip codes on top of this. We let the market decide where these walk-ups are. So let's go through what that analysis and that data set really revealed to us, right? We did not, again, impose things on it. We let it talk to us. And we found that walk-ups are important, just as we highlighted on the slide that showed in the top 35 metro areas, the share of landmass versus GDP that was coming from walkable urban places. Now we're talking about not the metro area, but the city And we're talking about within those cities, the contribution of walk-ups. So you can see it's about 3% of the city land mass. that holds about 25% of the inventory, 26% of the real estate value that generates 37% of the property tax revenues. and is associated with the production of 57% of the city's GDP. And it's really important that that 57% of the gdp much of it are export or base jobs that then ripple through the entire economy so it's one could argue very easily that But that 3% is the reason the city exists. And this is when you think about, well, how would a doom loop manifest, right? It's when you have these urban cores that have been challenged by the pandemic, if they're not doing well, this is highlighting the dependence of other parts of the market on these particular areas. So whether you live there or work there or you don't at all, they're very vital to the health of the broader city as a whole. And so this is just one way of representing that. We also found that we've focused, especially in commercial real estate, on the CBD, the urban core being home to the office market, right? And so we've gone all in on office. We're going to show you just how all in on office we have gone. And that's in part because we've been seeing over decades the rise of what we call the knowledge sector. And this is everything from your tech jobs, finance, insurance, and real estate. white collar jobs that tend to locate in offices. But what we also have seen, and this is globally true as well as in the US, is the rise of the experiential economy. And in fact, when we look at cell phone data, it is not commuters who make up a majority of foot traffic in walk-ups. In fact, it's actually visitors. And this was true before the pandemic. It was about 70%. You can see on the right there, kind of varies by walk-up type specifically, but it was about 70%. in 2019, and it was about 70% in 2023 as well. And so this really starts to reveal, I think, and maybe foreshadow some of the results that we find as this experiential economy is important and of growing importance in terms of how the economy operates. And it's important to link the fact that the knowledge economy and the experience economy wants to be in walkable urban places. And that's why there's pent up demand for it, why there's price premiums for it, why there's market share gains. happening in walkable urban places. The economy is driving it. Follow the bouncing doll. to kind of even go further, that was all visitor traffic just going to a walk-up. What we did was we actually isolated what we call anchor institutions. Think of this as sort of destination retail or event space theaters. sports arenas, convention centers. Museums, those sorts of institutions, they make up about 1.4% of real estate inventory, but they account for a very large proportion of visitor foot traffic. So downtown and urban universities, maybe they only account for about a fifth. In the total, they account for about a quarter. And in those urban commercial walk-ups, which are defined by right entertainment component, they actually drive about half of all foot traffic. So understanding the role of the experiential economy is going to be vital to thinking about, well, how should the built environment shift as we move into a post-pandemic economy. in order to maximize real estate values, GDP, and things like that. So in terms of the footprint, this is what we found. So this is just the data telling us what actually is the footprint of all real estate. When you look at the city as a whole, walk-ups plus the non-walk ups, you have two thirds of inventory square footage is in some form of live, whether that's for sale or rental. You have about 20% in work and about 12% in play. As you look at just the aggregate of the walk-ups, clearly that shifts Only about a third is live and now over half is work. Play is still a small share. You can see across the board, play is actually a pretty small share. But as you head towards downtown, you find that you actually have a lot of office, some kind of office, whether it's owner occupied GSA or private rental market. office space. And this is really where we start to see the challenge that cities face and particularly their downtown. And we showed you the importance of walk-ups in terms of GDP, 57% of gdp Downtowns are way more productive even than other non than other forms of walk-ups. So downtowns when they're challenged they have a sort of very important influence. In fact, they make up almost half of GDP of walk-ups, even though they're only one of four types. And so this kind of gets at maybe the beating heart where we see that as kind of the We need to take care of the core, right, in order for the other parts of the city to thrive. And downtowns are the most challenged now. And this is going to come back to in part because they've gone in the built environment very, very heavily into the office market in particular. That's why we say that downtowns in particular but many walk-ups have violated portfolio theory. They've put too many eggs in one basket. Yes. And just to kind of illustrate for the 15 cities This is just downtown, but you can see here there are some downtowns like Boston, San Francisco, and Washington, D.C, where literally 85 to 90% of the square footage in that downtown is some form of office. Now, on the low end, you have Miami and Phoenix. And in fact, when you dig into the real estate data and the outcomes, the markets in Miami and Phoenix and their downtowns have held up much better the more office that we've seen. exist in a certain downtown or in a certain walk-up has been directly correlated to worse outcomes across a variety of metrics in this sort of transition to a post-pandemic world. So what did we find? Well, with this underlying data on 208 walk-ups. Across these 15 cities, we did what is called a random forest dual optimization algorithm. And the intent of this algorithm was to simultaneously maximize real estate price per square foot Think about that that's in the interest of the city government as well, because that will maximize your tax revenues. At the same time, maximize GDP, because what is optimal for an investor or a city government may not be optimal for GDP. And what is socially optimal even And so we dual maximize these at the same time. In the large white letters here that are numbers that you see, those are the average, that's the conditional mean recommendation based on that maximization effort. And so what this is saying is 40 on average across these walk-ups, 42% of inventory should be work. 32% should be live and 26% should be play. We have the conditional margin of error around that. No two walk-ups. should work need to be the same. There is a range that meets that criteria. And in fact, we discussed that there can be complementary walk-ups where maybe one is higher end work and lower in the other categories, but it's next to a walk-up that is higher in the other categories and lower in work. So it's important to recognize that, yes, there is a mean estimate, but there's always a margin of error. This is what that looks like. And really, this results in a few key findings, which we'll get to in a second, just in terms of taking this and showing you how how much of the real estate is in that in the range, right? So for live, we actually find that Many are below optimal. Some are in the range. in downtowns, we're pretty much above optimal in almost all downtowns and play were for the most part, either below or in range. When we go to non-downtown walk-ups, you can see that in some cases we're above optimal. I would just say for live make a mental note that a lot of that is correlated with urban universities and then in range, we found a lot more walk-ups meeting the sort of in-range criteria across categories outside of downtowns. So what this means of course And we've all been discussing it, of the conversion of office into something else because there's there's going to be 30, 40% of the office space is going to have to find something else to do with it. And the best thing, of course, is for residential. There's been up demand for residential, particularly in our downtowns. And we are missing 4% of the housing stock that we need in this country. This is why we have an affordable housing crisis. Part of the reason we have a homeless crisis. So those offices can be converted to residential and especially when they drop in price so much that you get them real cheap. But they also can be converted to play. And they could be museums they could be vertical farming. They could be data centers and all sorts of ways that we can convert these offices. And what that does is it broadens the product mix, balances the product mix, and gets rid of too much office, which drives down office valuations by having a surplus overhanging the market. So, you know, taking all of these things combined, these are the key recommendations. I don't think it surprises anyone to hear we need less work and we need more live. What we found is that in particular, the ratio of for sale to rental housing is skewed the more move from the city towards walk-ups towards specifically downtown Whereas maybe two thirds of the housing stock is for sale. citywide, nationwide even, as you head to downtown, it's more like half and half. And as you saw earlier, only 15% of real estate stock is in some kind of live in our downtowns, which is much, much lower than elsewhere. Which is a 76%. Right. right and 67%. Yes. And I think maybe one of the things that surprised me the most was this sort of overarching finding that almost all walk-ups have too little play. And when you think again back to the economic influence and impact that play has in walkable urban places, in walk-up specifically. maybe it shouldn't have been as much of a surprise, but it was and so that target range was on average 26%. a range of 17 to 31. So 90% of the time we're somewhere in that range. But we found that most walk-ups have something under that, right? On average, in walk-ups, it was about 14%. In downtowns, about 14.5%. So we are underplayed, under allocated to that. It's not just about increasing live because of the nature of what a walk-up is at its core. play has that also a vital role in the future of reimagining what the portfolio product mix is. All sorts of things that we can do. It obviously starts with recognizing that we do have a threat of a doom loop. We hope it's going to be episodic, short-term in nature. We think it will be. But if you don't address it now and really go big with it. it could become structural, which would take decades to solve. But the other thing that we really think is important is that is that we make the permitting process i mean We in CNU know this and we've talked about it, but we need form-based codes CNU basically invested or basically invented form-based codes. We need much It's cleaner, easier permitting process. And we need to put in place the incentives to make sure that those office buildings can be converted. to some other use particularly. a residential, but all those dots Lots of other things that can be done that we don't want to go focus on. We have a lot of experience doing this. So this is not something we have to invent But it's time to get to work. So I think the last thing we have actually just come from meeting with some place management folks is to think about having the right kind of benchmarks. This was the first of a kind data set that we assembled. It started to reveal things to us like there weren't clear cut premiums, right? We're outperformance in certain measures where we saw engagement in place management versus there being no place management. Now, we've used the term bid here. Just know that that includes other forms of place management like community improvement districts and so on. And generally speaking, we found it was a mixed bag, whether there was place management or not, that was true across GDP. It was true across valuations on a price per square foot basis. It was also true on an NOI per square foot basis, which removes the effects of the interest rate environment on property outcomes. So that was a little bit of a flag to us to say, hey, there might be more to study here so we can find the right kinds of indicators that will add value to not only place managers, but of course the real estate owners who are paying to be part of part of those groups and so and so closing. Place management is crucial. It is absolutely essential. that these walk-ups are managed. But we also have to measure the right things. And we don't sense that most bids have been measuring GDP. they've not been measured, and particularly over time and measuring real estate valuation increases over time. And in particular for the city government measuring the net fiscal impact these places have on the city budget. So I liken it to that we as a industry Real estate, walkable urban real estate, place management. that we go into a forest And we want to see if a tree makes a makes a sound when it falls. And we whip out our thermometer and we swear it doesn't make any sound. we're using the wrong measurement device. And so we're suggesting at least three. There's others as well. as far as, you know, as, you know, using Placer AI to understand visitor counts and social equity metrics, but measure GDP periodically. Measure real estate valuation measure the net fiscal impact on the city government Because business improvement districts, why they exist. is to improve business. And right now we have to right the ship in our walk-ups throughout the country so it doesn't become a structural Doom. I think we've hit on this in a number of ways but you know, making walkable urban places more attractive for visitors is important. This gets into things that I'm not a particular expert on, but around design, right? Many of the people on this call are probably engaged in some way, shape or form in kind of visual creating visions for cities on these topics. Many more Instagrammable memorable places that are unique to our walk-ups. And this is, you know, in some cities there are visions coming out, right? Like the DC Mayor's Task Force and reimagining parts of downtown that again kind of percolate out into other walk-ups and create osmosis between them. And last but not least. More research is needed. Every research project has this as their number one reason to exist. We only did 15 cities. We need to go to at least the top 35 metros and include a not just walk ups-ups but also focus on all four quadrants of the place lens of the places lens In those 35 metros. We hope that will be our next step. So back to you, Rob. Excellent. Thank you very much. That was really… interesting and informative. We've already got some good Q&A and we'll get to those in a few minutes, but let me just ask a few questions. first. When people hear the term urban doom loop, it sounds pretty bad. I was wondering. kind of Can you give a little bit more context for how How widespread are these problems among all the walk-ups that you examined and how optimistic are you in terms of fixing these problems? So I think, you know, across the 15 cities, I would say we had two main buckets. One is markets where there is a real risk. of a doom loop or in fact early stages of one. I would certainly put the gateway markets in that bucket. I would put Seattle in that bucket. I would put Denver in that bucket. And then you had markets that were not really at risk at all. I would certainly put Miami there, but I would also put Raleigh and some of the smaller cities that we studied in that bucket. Now, we talk about structural versus episodic. And structural being the loss of some major economic engine And really a sort of stasis around action in terms of doing something about it. That's not what we're seeing. So we're seeing that there's pent up demand for walkable urbanism within the residential market. That is one market and including population metrics which had fully recovered in downtowns, by the way. So there is that demand to be there. And that's a signal that there was demand for this, what Chris refers to as market shift shares, that there's premiums for that kind of place. And so that's a signal, that's a positive signal, right? We're seeing GDP recoveries to varying degrees. We're seeing recoveries. We're not seeing a continued decline So those are all positive things but Without doing something about this excess work real estate that we have there is a real possibility that in some cities this does become more entrenched. And the way that this manifests for city governments is something that takes time because of how tax assessors assess value. which is very divorced from what we call the spot rate or the fair value, which is what we show in this study. Basically, that fiscal impact section that we looked at is a little bit of a foreshadowing of what city tax agencies can expect to happen as their assessments actually align to the reality of where values are. And this has implications because walk-ups, we consume less per square foot than the rest of the city. They generate more per square foot than the rest of the city. They subsidize the rest of the city. So when this real estate is this challenged? And values, we know where they're headed on an assessed basis. doing something about that now swiftly, right? Thinking about the incentives that cities are offering, there is a risk reward there. And we think that the reward is very great for doing that. I'm optimistic because we're seeing cities around the country start to take action. Different degrees, different paces. We see in DC, San Francisco's come out with a plan. Chicago has a plan. Everybody's kind of getting their footing, but there's still a lot of work to do and it's a monumental effort to think about taking 85% of square footage, being in work. to something more like 40 to 60%, that just takes time. I mean, like all good crises, you don't want to waste it. And so we know that we've been that we've been violating portfolio theory, now is a chance to rebalance and particularly taking that office and converting it to the play spaces and converting it to of course residential. And there's pent up demand for all of the above. It's just a matter of having the will to do it, having the zoning put in place to let you do it and having the place management in place that drives it and provides leadership. But, you know, in this report, we have about 10 different case studies of former doom loops, both structural and episodic. of basically overcoming doom loops in the past. And, you know, we've heard for decades that the city's dead. It's all going to be blown up and paved over and the geography doesn't matter. Well, you've always come back. And we're going to come back this time. And we're going to come back better because we're going to have a balanced portfolio. Now, we hear a lot about problems with converting office space to residential, and maybe there are some offices that are easier to convert and Have you looked at that problem and do you have suggestions or ideas or what have you seen in terms of how easy it is to convert office to residential for other uses. Let me mention that it's obviously a building specific. I mean, we all know this now that it depends on the floor plate of the individual building, whether it's lined up without any you know if you only have two exposures where you can get natural light if you have 60,000 square foot floor plates it gets tough to get natural light into every room if it converts to residential. but just If in fact these office buildings are trading at 30 cents on the dollar 20 cents on the dollar, the lowest one I've seen is five cents on the dollar. all of a sudden, you effectively have been given the building for almost free. And there's a lot you can do The best model I've seen here in DC is a rectangular building with 60,000 square foot floor plates Now, it was freestanding, so it wasn't butt up against its neighbors. So that's good. But 60,000 square feet, trying to get natural light into all rooms really difficult. They turned that building into a capital E. they cut out the spaces to make a capital E And it just exploded with demand. We've seen that in New York on Water Street cutting a hole right down the center. So when you have a 10 cents on the dollar acquisition. very low basis. You can make those kind of things work very easily. um so yeah i think you know ultimately it's a complicated question to answer because there's low hanging fruit of what's easily convertible, what might leave an owner in the money, right, or holding the same asset as they take it through this journey. And then there's just the reality of at the right price, which is where the market will go. There will be there. trades that reset the basis that do make it attractive to to create a different property type where there is demand, where there is significant pressure on values structurally. And so I think the market will get there. It's not a pain-free process. But the hope is with the right incentives, you can accelerate that so you don't go through blown out process that then feeds into public tax revenues and city services and creates more challenges on top of the one that that already exists. No. I'll just have one more question. We have a lot of Q&A. And that is… Do you have some next steps for cities to take to really get a handle on this and then begin to make some changes that you recommend? So the first thing is to accept this is like any other eight-step, 10-step process is that you just have to accept the reality that buildings that were worth you know a thousand dollars per square foot five years ago are now worth 100, 200 bucks per square foot and that ripples through the entire economy and through the city budget. So accept it. come up with some big moves and we've laid out in the report some of these big moves, and we've just talked about some of them. it all comes down to make the right thing easy. Rather than make it hard, anybody who's involved in new urbanism knows how hard it is to change zoning. And to get the approvals and how much time it takes, we've got to shorten that. you need a fundamentally new strategy and that needs to be implemented by the place management organization. But we need strong leadership and place management organizations have to step up and provide that leadership because they are the foundation of the city economy and the reason the town exists. Okay, we're going to… Yeah, I would just add on by saying I think part of this solution is actually revealing the data So that we know what we're working with, because until this study, we actually really didn't know, right, how much is actually work? Well, it's very hard to estimate that when you don't actually include things like owner occupied real estate in the conversation or where you don't bring in for sale housing to a conversation around the broader residential market So I very much view this as providing very important data as a starting point off of which those strategies can be built. And we are seeing cities step up again to varying degrees around the nation And even in some cases abroad for any folks in Canada on the line here, but you know that that's an important service that we hope that this study provides and you know we're sitting down with a lot of cities and place managers to hopefully provide more insight into that data. I don't know if you guys have the link that you could put in the chat for the downloading the report, but that was asked if you get a chance to do that. Brian asks, how much more walk-up land do we need in our cities and how are they supposed to be spread around? Also, do you have any thoughts on how anchor institutions can relocalize the economy? Let me talk about that percentage of land because I've been dealing with that a lot over the years and again At the metro level, it's only 1.2%. of metro areas are walkable urban. So a tiny fraction of land And the other 98.8%, it's illegal. to build walkable urban. So, and by the way, the reason walkable urban is so expensive. is A, because the market wants it. But B, because there's just not enough land. The major reason for the affordable housing crisis is that land has gone from 15, 20% of what you buy when you buy a house or a rental or buy an apartment. to 50, 60 in San Francisco, 80%. That's the reason for the affordable housing crisis. And so we need to flood the market In cities, it's, again, 3% of the lions walk up. if we would raise that in cities to 10%, We would then flood the market with a lot of zoned land ready to go And it will begin to drive down land prices. That's what we have to do is to drive down the land prices by flooding the market with more land. At the metropolitan level, again, 1.2% of all land in our metropolitan areas is walkable urban. both walk-ups and walkable communities we probably need 5% of the land to be zoned for walkable urban. That's all. So we don't have to convert single family, you know, get rid of single family zoning. What we need is there's so much land we have that we can convert to high density walkable urban Whether they be in cores. or corridors. All the strip corridors coming out of our cities, they should be rezoned for high density just along the corridor. just the parcel that's facing the corridor I actually live on mass ave It's a major corridor and we live facing Mass Ave in a high-rise apartment And, you know. That's where we need to go. So we have plenty of land where it's possible to do it. We don't have to rezone single family. But we need to get those cores and quarters up zoned to go from 1.3% at the or 1.2% at the metro level up to about 5%. And yes, about anchor institutions relocalizing the economy, or do you have any thoughts on anchor institutions and walkers. One. One thing on urban universities, they have been the major urbanism institution throughout the country. And they learned it back in the 1990s, primarily when Judy Roden was president at Penn. She led the way. She then went on to be head of the Rockefeller Foundation. And she turned west philadelphia from a very dangerous place and Penn was listed as number 18 in the US News and World Report. She converted West Philly into the most exciting walk-up in in Pennsylvania. I do development in the Philadelphia metro area, we can never find land around Penn that's so expensive. But urban universities have embraced their community over the last 20, 30 years because they move up in the US news ranking. Penn's now six. So, um. what we need is more models like Penn. And in particular, hospitals are terrible. miserable neighbors as far as walkable urbanism. They could be phenomenal neighbors. But then we've got to you know the placement of museums placement of certainly arenas baseball stadiums, not football stadiums. Football stadiums are a waste. Put them out in the suburbs. let them tailgate on the surface parking lots. But baseball stadiums, soccer stadiums, arenas, all of them should be in walk-ups. They do better. And they make the walk up. go back to that upward spiral. I think we also have talked about right like when we looked at the visitor foot traffic, for example, we were agnostic as to where those visitors were coming from. And in some cities. you have much more emphasis on international visitors. And so the nature of what that play is going to look like is by by simple kind of one step removed going to be a little bit less oriented towards maybe the local economy, right? But you can create nodes of play that do serve the local population. We were talking about examples earlier. So I think it is going to be very city specific. The benefit of this, though, right, is if you do take seriously that walkable urban places should have more play In general, and places that we're families can go, places that have things that we didn't necessarily talk about more sort of equity and social inclusion angle to thinking about redevelopment. this will by extension, I think create more opportunities for local serving jobs to be created, which in turn supports communities through creating job engines. So a case study that I was deeply involved in when I lived in Santa Fe the Santa Fe Plaza, the 400-year-old plaza. became completely terrestified. And the locals were kind of pissed. And I was involved as head of the Metropolitan Redevelopment Commission in buying a 50 acre rail yard from the Santa Fe rail yard or from the Santa Fe Rail Company. And we've redeveloped it using a nonprofit Development Corporation into a local serving place. This is where the farmer's market has a permanent housed a 12 month place for their farmer's market, a lot of park space, a lot of affordable housing So basically, the locals felt like they were thrown out of downtown But a downtown adjacent place, the Santa Fe rail yards are now the heart of the local community. Anybody listening, I would also point to the Nashville Civic Design Center, who's very focused on engaging the community and thinking about redeveloping and not emulating what they have downtown along Music Row, but creating other places in the city for local communities. That's a great. And I got to say that Nashville copied that from the Chattanooga Downtown Design Center. Chattanooga is one of my favorite towns so i Yeah, throw that in. A quick clarification, when you're talking about the portfolio percentages and so forth, you're talking about square footage and not land, right? Yes. Yes. Square footage of improved square footage and also the valuation thereof. Okay, we had a question. Was there any consideration for the play that is third place consisting of third places that are not pay to play type locations? where everybody can go free. Oh, yes. Absolutely. Oh, yeah. Yeah. I mean that includes the entire range of play. It is not just and you know many museums are Free, there are A lot of Instagrammable places that are being created with you know terminating vistas and And Las Ramblas kind of places that we are seeing built throughout the US now. So yes, it is not just the you know the downtown arena. And of course, you know, convention centers are great play places and there's a lot of local serving events in those convention centers, and that's part of the play as well. We have a question from Franco. An office is the dominant land use in San Francisco, downtown. There's discussion from the city to bring more housing downtown, yet there's not agreement by city officials in who has the decision-making authority that office to residential conversion would benefit the city's budget. As the city planning director says, once the conversion happens, it can never go back to office. It's a mixed message. What do you have to say? get real. Go with what the market wants The market doesn't want 80 percent of your assets in a place dedicated to a vertical business park. They're sterile, they're boring. The market doesn't want to Yeah, I think there's also just a few things that take time for I think to work through into city budgets so i work with city governments and budget agencies around the country and Again, assessed values from the city's perspective are very different than where values are and the relative pricing between things like residential and office have shifted. that's not fully reflected in assessed valuations by city governments yet and so you know that is a reality that they don't have the numbers in front of them to face of where the revenues are headed, right? Because like Chris said, maybe that was a 1000 dollar per square foot office building and you were earning some kind of tax revenue off of that, now it's something else and the assessed values just take time to get there. Sometimes it can take anywhere from five to 10 years for that process to work itself out. It's not a fun one for owners, but it also right is something that is litigious. So it's a very messy process to get there staying 87% office, which is where San Francisco's downtown is. It will also continue. So the more excess office you have, it will also continue to press offset valuations for the office values for the office product that is actually viable as office. Because in fact, what gets lost in the I think the messaging of maybe this study is Indeed, our recommendation is that a plurality of space is still office space of some kind in walk-ups because of the economic role that they play, 42% versus 33% live on average, right? It's at these extremes like San Francisco and DC and Boston where that is most out of whack and there's the it will ultimately come through in valuations and tax revenues it just unfortunately for city officials because of how assessments work, it takes a long time and we're trying to say. this is coming. This is coming no matter what. And the valuations and the relative pricing have changed in the spot market. We see that in the transaction business all the time. And you see it in the headlines in terms of 30 cents on the dollar, 40 cents on the dollar, whatever the case may be. The other thing to recognize, and most city city folks don't understand this. is that you need to do a net fiscal impact. that fiscal impact is public revenues minus the cost of servicing equals the net fiscal impact. And walkable urban places are highly productive. much more so than drivable suburban. And CNU's done a lot of work on this. But it's also that everybody just assumes knee-jerk reaction is that offices have a higher net fiscal impact than residential. not necessarily true. Here in DC, If you had a trade-off between having somebody work here in DC or live in dc it's higher return, higher net fiscal impact if you live in dc because of the tax structure. We have an income tax, for instance, and you spend tax on their sales taxes that you get picked up. So, um. It is not a slam dunk. that its office always is the better use from a net fiscal impact point of view. Many times it's it's a residential. Each city has its own fingerprint And you need to understand that to make that call. Miles asks, how do parks factor into play not having an economic output like the rest? In general, did you study parks and open space at all? They're not building square footage but We certainly have it in our data set we have separately looked at parks And understand that we now are in the middle of a revolution in urban parks, we're really getting much better. at doing urban parks. So campus marshes in downtown Detroit, Clyde Warren in downtown uptown dallas And of course, the granddaddy of them all is Bryant Park on 42nd Street in Manhattan And these places have been converted from a cost center you know brian park 30 years ago had a $600,000 per year budget to run a five acre park on 42nd Street. And for that, they got the best drug dealing center in Midtown Manhattan. the private sector came in. took it over all private money rebuilt it And now it's not 600,000, it's $16 million per year. These are all 2024 dollars It's $16 million per year. budget, 80% of it is being generated on site from the restaurants, from the christmas festivals from all sorts of things happening and so We're learning how to make these things work. and not just be a cost center. But they can be a profit center. And they're free to anybody to come in. Eric asks, how did you arrive at the optimal amount of play? Any thoughts on what play components contribute more vitality returns than others? We did not do the optimization at the subtype level, play involves traditional retail concepts, different kinds of hotel concepts, as well as these other forms of destination, whether it's museums, theaters, which is a very curated list of properties for each city. Given the sample size that we had of 208 walk-ups, it would have been very likely that we wouldn't have been able to get results if we went down to that subtype level, because then you're just you're trying to optimize 10 or 11 subtypes across live, work, play with a limited sample. So I think as we think about expanding to more cities to including other parts of the city, we might be able to have enough sample data to get at that. That said, we did find that that destination retail was really important. It was very important in urban commercial walk-ups, which makes sense because by definition, that's sort of what they're built around is an entertainment district or component. And in those areas. it was roughly 50% of foot traffic that was contributing to the vitality of that area. In other places, it was more like 20%. That's a very, very big range. We didn't even have enough sample data to say, well, what's optimal for downtown versus an urban commercial because, of course, we have 15 cities there were 16 downtowns, one in each city. Manhattan has two downtowns. you can't create an optimization algorithm with 16 data points. You wouldn't get results from an algorithm. We used a random forest machine learning technique to do dual optimization. And that allows for nonlinearities to be captured. A traditional linear optimization algorithm would have been what's called greedy, and it would have just chosen, well, what's the highest real estate per square foot? And it was to go 100% on that. Well, that's definitely not the way to think about the problem that we're trying to solve. And there is a lot of nonlinearity in the world. So that I think hopefully answers the first part of that question as well as the second half. We are at the one o'clock time, and I just wanted to let people know that we will be posting this video on the CNU website within a day. We can go for another five minutes or so and So let me just ask, other than balancing the product mix, what are some strategies to bring walkability to downtowns that you've been able to perceive through your study? Does a solid network of alternative transportation methods play an important role? Certainly it does. Walkable urban places, it doesn't matter how you get there, whether it be transit, bike. car, truck, walking. But once you're there, it needs to be there walkable urban. It needs to be mixed use. It needs to be safe to cross the streets. It needs to have you know uh you know traffic being calmed and um So, you know, the walkability of the place is fundamental to making it work. The other thing that's fundamental, of course, is making sure crime has been addressed. The reason we we saw the return to the city in the 90s was because crime plummeted by two-thirds. And by the way, to this day, we don't know why. we have no causal connection as to why it happened. It just did. So thank goodness. And so we had the return to the city movement in the early 21st century And then for those of us with white hair. We never thought we would have to have another redevelopment of our city walk-ups but here we have to do it again because of the pandemic The other thing that I mentioned earlier, it is crucial, crucial, crucial to have place management. Whether that takes the form of business improvement districts. Main Streets, community improvement districts. all sorts of different forms sometimes As opposed to a nonprofit like a bid sometimes we see a developer or a group of developers do it in-house. We're seeing that particularly with the urbanizing suburb Reston Town Center, the Greenfield godfather you know granddaddy of Greenfield walkable urbanism Boston Properties controls 50% of the square footage. They're the ones that are the place manager. So there's lots of different options you must must have place management. Otherwise, you're never going to be able to get yourself out of this ditch that we're in. We have a question from Healy Sutton, who says hello to you. Chris took your class at George Washington University several years ago. Oh, that's right. Yes. Is the general panic over the increase in remote work overblown or has this significantly contributed to the doom loop? It certainly kicked off the doom loop. Hello, Healy. I'm glad that you're still still engaged. It's great. that um it certainly kicked off. I think we're going to look back upon the pandemic as a bump in the road And if we take advantage of this crisis and take advantage and really use the new tools that we're being given. low cost office that can be converted to something else. this will be a net gain for us. over the next three, four, five years. But there's no doubt that the pandemic and the acceleration of work from home, which was rising from 2000 to 2019 across cities all over the nation. That is an accelerant, right, to this new paradigm And I think it just revealed that where you thought you had these high risk adjusted rewards in the form of high office valuations in these walk-ups, well, it turns out that those were not risk adjusted, right? And that's the concept of portfolio theory is risk adjusted returns that are maximized and this was really, I think, the sort of unveiling of the fact that that risk had not been appropriately accounted for. And that the pandemic allowed for a hybrid work environment that has fundamentally lowered office demand on a marginal basis. So what that means is office demand is going to be 15 to 20% low. lower than it was before. What that means is actually very complicated. It doesn't mean that we need 15 to 20% less office space right now. But it does mean that there's lower demand. These high vacancies and in some markets extremely high vacancies are presenting real challenges that i think lead to lower values that provide that accelerant to what Chris is talking about is this sort of once in a generation opportunity to really reimagine the kinds of real estate that we have in our in our walk-ups. And keep in mind, Rebecca is a global economist for Cushman and Wakefield, which is part of the global big three primarily off, not entirely but they have a huge role in office leasing, brokerage, and also management. And here she's saying that the office market is going to be in retreat. That's a pretty amazing thing coming from Cushman and Wakefield. So this is a for real thing. it's not going to just somehow heal itself. we need to roll up our sleeves and get to work. The office, I'll just end by saying the office market is really complicated because you see a big statistic like 25% vacancy rate. what that masks is that there's product, maybe 50% of product that is 10% or lower vacancy rate, 30% of buildings are fully leased. But then there's this concentration of weakness with extraordinary high vacancy. And so if we can be targeted and methodical and help to advise our clients through and say, hey, you actually have viable office that we think is going to thrive. We're in this adjustment period where the broader market statistics that you see mask an incredible complexity of on the ground what's happening building by building And so we're hopeful that we're able to help, you know. in this part of the market, there's too much office and these assets are the ones that are going to 80, 90% vacant they're clearly not viable as office anymore. It's incumbent on us to be good advisors to our clients and then to also say, actually, most office, most real estate and walk up should be office, in fact. And so let's think about what that looks like. you know what what attributes do you bring as an owner that is going to attract occupiers, right? We know what occupiers want because we represent them in the leasing market. One of the things that we found in this study, and it's also been backed up with another downtown study that Paul Levy did last year. is that people come back to the office when they live within two miles of the office. And so office owners need to be thinking about where are these people going to live? We need to build more housing within walking distance of these offices to help the office market. We didn't know that before. I think we're going to have to end it. And thank you very much, Rebecca and Chris, for really excellent presentation today. And I want to thank all the people who attended. And once again, we'll post this on CNU website. within a day and everybody have a great day and thank you again.